When do stock options affect CEO risk‐taking? The moderating role of CEO regulatory focus

Executive stock options are provided to risk‐averse CEOs to encourage risk‐taking. We show that the efficacy of such stock options is moderated by CEOs’ regulatory focus—their intrinsic motivations to avoid losses or achieve gains. We show that stock options have a negligible impact on the risk‐taki...

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Bibliographic Details
Published in:Journal of business finance & accounting 2024-07, Vol.51 (7-8), p.1724-1761
Main Authors: Chen, Yenn‐Ru, Chung, Tuck Siong, Lin, Chia‐Hsien, Low, Angie
Format: Article
Language:English
Subjects:
CEO regulatory focus
Chief executives
Efficacy
executive stock options
executive traits
Intrinsic motivation
Risk behavior
risk‐taking incentives
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Summary:Executive stock options are provided to risk‐averse CEOs to encourage risk‐taking. We show that the efficacy of such stock options is moderated by CEOs’ regulatory focus—their intrinsic motivations to avoid losses or achieve gains. We show that stock options have a negligible impact on the risk‐taking behavior of CEOs who are intrinsically motivated to avoid losses or take on risks. The impact of stock options on firm risk is strongest among CEOs whose regulatory focus is moderate and whose behavior is thus more malleable. Our paper shows that CEO intrinsic risk‐taking motivations have important implications for the effectiveness of extrinsic risk‐taking incentives provided by stock options.
ISSN:0306-686X
1468-5957
DOI:10.1111/jbfa.12762